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Chapter 7

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Nonlinear Relationships

Chapter 7

Prepared by Vera Tabakova, East Carolina University

- 7.1 Polynomials

Principles of Econometrics, 3rd Edition

7.1.1 Cost and Product Curves

Figure 7.1 (a) Total cost curve and (b) total product curve

Principles of Econometrics, 3rd Edition

Figure 7.2 Average and marginal (a) cost curves and (b) product curves

Principles of Econometrics, 3rd Edition

Principles of Econometrics, 3rd Edition

If Deriv < 0 => Exper < -β3/2β4 ,

or Exper> β3/2β4 .

Principles of Econometrics, 3rd Edition

Principles of Econometrics, 3rd Edition

Where 33.47 is the ‘turning point’

Principles of Econometrics, 3rd Edition

Principles of Econometrics, 3rd Edition

Principles of Econometrics, 3rd Edition

Figure 7.3 An intercept dummy variable

Principles of Econometrics, 3rd Edition

Principles of Econometrics, 3rd Edition

Principles of Econometrics, 3rd Edition

Figure 7.4 (a) A slope dummy variable. (b) A slope and intercept dummy variable

Principles of Econometrics, 3rd Edition

Principles of Econometrics, 3rd Edition

Principles of Econometrics, 3rd Edition

Principles of Econometrics, 3rd Edition

Principles of Econometrics, 3rd Edition

Principles of Econometrics, 3rd Edition

Based on these regression results, we estimate

- the location premium, for lots near the university, to be $27,453
- the price per square foot to be $89.12 for houses near the university, and $76.12 for houses in other areas.
- that houses depreciate $190.10 per year
- that a pool increases the value of a home by $4377.20
- that a fireplace increases the value of a home by $1649.20

Principles of Econometrics, 3rd Edition

- 7.3.1 Interactions Between Qualitative Factors

Principles of Econometrics, 3rd Edition

Principles of Econometrics, 3rd Edition

Principles of Econometrics, 3rd Edition

Principles of Econometrics, 3rd Edition

Principles of Econometrics, 3rd Edition

Principles of Econometrics, 3rd Edition

Principles of Econometrics, 3rd Edition

Principles of Econometrics, 3rd Edition

Principles of Econometrics, 3rd Edition

7.3.4a Seasonal Dummies

7.3.4b Annual Dummies

7.3.4c Regime Effects

Principles of Econometrics, 3rd Edition

Principles of Econometrics, 3rd Edition

Principles of Econometrics, 3rd Edition

Principles of Econometrics, 3rd Edition

Principles of Econometrics, 3rd Edition

7.5.1 Dummy Variables

Principles of Econometrics, 3rd Edition

Principles of Econometrics, 3rd Edition

Principles of Econometrics, 3rd Edition

Principles of Econometrics, 3rd Edition

Principles of Econometrics, 3rd Edition

- annual dummy variables
- binary variable
- Chow test
- collinearity
- dichotomous variable
- dummy variable
- dummy variable trap
- exact collinearity
- hedonic model
- interaction variable
- intercept dummy variable
- log-linear models
- nonlinear relationship
- polynomial
- reference group
- regional dummy variable
- seasonal dummy variables
- slope dummy variable

Principles of Econometrics, 3rd Edition

- Appendix 7 Details of log-linear model interpretation

Principles of Econometrics, 3rd Edition

Principles of Econometrics, 3rd Edition

Principles of Econometrics, 3rd Edition

Principles of Econometrics, 3rd Edition